Choosing the Lesser of Two Evils: Explaining Multinational Banking Groups’ Push for Supranational Oversight in the EU

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Abstract(s)

For decades before the Global Financial Crisis of 2008, West European nation-states maintained close political ties to their banks. Banks enjoyed regulatory forbearance and limited competition, while states cultivated national banking champions and a ready constituency for government debt. Europe’s economic crisis and the regulatory response have largely upended this erstwhile symbiotic relationship between many banks and their home states, however. In the debate since 2012 over European Banking Union, even within a framework of stricter regulation and centralized supervision in the European Central Bank, a surprising source of support for supranational authority has been from Europe’s multinational banking groups. This paper explains why banks, once beholden to and beneficiaries of national regulation and supervision, have opted instead to lobby for much more European-level oversight. I argue that states sowed the seeds of their own political marginalization vis-à-vis banks by encouraging, first, banks’ domestic consolidation and then their outward expansion. As banks became more international in orientation (and as a greater share of their revenue came from foreign markets) they became more interested in a single rulebook and consolidated supervisory authority, even at the expense of national forbearance. The paper thus argues that for multinational banking groups (but not their domestically-oriented counterparts) European Banking Union and “more Europe” generally represented the lesser of two evils when compared to continued national control.